If t the Fed had done in the 1930s what Bernanke and Greenspan have done, the Great Depression would have been much worse. If the Fed would have tried to re-inflate the stock market bubble or keep it from bursting in the first place, it’s the dollar that would have collapsed. Subsequently, the Great Depression in America would have looked liked what we are about to experience now.
As bad as the Great Depression was, hyperinflation would have made it even worse. It is unheard of for any country to devalue their currency into prosperity. Recessions are a natural part of the free markets; corrections and ups and downs are normal. However, the US could never allow its foreign investors to see a downside in its consumer driven economy – an economy that could not exist without their investments.
It is important to keep the economy going, and that means keep Americans shopping, give them credit and allow them to finance a lifestyle their incomes can’t support. So the feds solution again was to cut the fed funds rate, but the impact of low interest rates have devalued the currency and the foreign investors are finding better investments outside of America. Now all this cheap money is being held by the banks and they only loan to each other.
The old saying,” I gotta rob Peter to pay Paul,” is now taking place in the banking industry, but the only people getting paid is them. Americans will soon be forced to live without credit, earning an income in a currency that is depreciating! So how can this consumer led economy continue to grow? All U.S. asset values will continue to come down because their current value is based on past performance.
I call that style of investing “the rearview mirror investments” because most Americans are investing in things based on how they performed in the past. The “rearview mirror investors” will keep asset values from going down at lightning speed because they believe, “the real estate prices will come back this always happens” or “it’s a cycle” or “I’m going to buy that stock because it’s cheap.”
Rearview mirror investors are operating on American arrogance and unfortunately are able to sell their beliefs with no evidence to support them except “this has happened before.” Well, I believe those asset prices are extremely overvalued, for example:
1.) Banks are holding debt they used to sell to investors and no one is buying it. So banks are now carrying that debt on their books while their stock prices fail to reflect that.
2.Retail stock prices have consumers and their credit cards priced into their values. However, the true value of those stocks should, at the minimum, price out credit.
3. The decline in U.S real estate assets has just begun, and what will those values be without credit when credit is what created the bubble in the first place.
About Aaron Wormus
Aaron Wormus works as the Managing Director of Website Creation at HedgeCo Networks and has worked with HedgeCo since the end of 2004.
Prior to working with HedgeCo Networks, Aaron managed a private consulting firm based in Frankfurt, Germany. During this time he worked implementing back-end systems for clients ranging from telecommunications companies to mining companies and Silicon Valley software distributors.
Aaron Wormus is a published author who has studied Information Technology and Journalism in Finland. His written work has been published in various technology magazines, translated into 5 European languages, as well as published book. Aaron regularly speaks at PHP Programming conferences, and is involved in the organization of his local technology user group.
Rearview Mirror Investing
If t the Fed had done in the 1930s what Bernanke and Greenspan have done, the Great Depression would have been much worse. If the Fed would have tried to re-inflate the stock market bubble or keep it from bursting in the first place, it’s the dollar that would have collapsed. Subsequently, the Great Depression in America would have looked liked what we are about to experience now.
As bad as the Great Depression was, hyperinflation would have made it even worse. It is unheard of for any country to devalue their currency into prosperity. Recessions are a natural part of the free markets; corrections and ups and downs are normal. However, the US could never allow its foreign investors to see a downside in its consumer driven economy – an economy that could not exist without their investments.
It is important to keep the economy going, and that means keep Americans shopping, give them credit and allow them to finance a lifestyle their incomes can’t support. So the feds solution again was to cut the fed funds rate, but the impact of low interest rates have devalued the currency and the foreign investors are finding better investments outside of America. Now all this cheap money is being held by the banks and they only loan to each other.
The old saying,” I gotta rob Peter to pay Paul,” is now taking place in the banking industry, but the only people getting paid is them. Americans will soon be forced to live without credit, earning an income in a currency that is depreciating! So how can this consumer led economy continue to grow? All U.S. asset values will continue to come down because their current value is based on past performance.
I call that style of investing “the rearview mirror investments” because most Americans are investing in things based on how they performed in the past. The “rearview mirror investors” will keep asset values from going down at lightning speed because they believe, “the real estate prices will come back this always happens” or “it’s a cycle” or “I’m going to buy that stock because it’s cheap.”
Rearview mirror investors are operating on American arrogance and unfortunately are able to sell their beliefs with no evidence to support them except “this has happened before.” Well, I believe those asset prices are extremely overvalued, for example:
1.) Banks are holding debt they used to sell to investors and no one is buying it. So banks are now carrying that debt on their books while their stock prices fail to reflect that.
2.Retail stock prices have consumers and their credit cards priced into their values. However, the true value of those stocks should, at the minimum, price out credit.
3. The decline in U.S real estate assets has just begun, and what will those values be without credit when credit is what created the bubble in the first place.
About Aaron Wormus
Aaron Wormus works as the Managing Director of Website Creation at HedgeCo Networks and has worked with HedgeCo since the end of 2004. Prior to working with HedgeCo Networks, Aaron managed a private consulting firm based in Frankfurt, Germany. During this time he worked implementing back-end systems for clients ranging from telecommunications companies to mining companies and Silicon Valley software distributors. Aaron Wormus is a published author who has studied Information Technology and Journalism in Finland. His written work has been published in various technology magazines, translated into 5 European languages, as well as published book. Aaron regularly speaks at PHP Programming conferences, and is involved in the organization of his local technology user group.